Q. Consider the following:- A country adopts a fixed exchange rate regime
- The country permits unrestricted cross-border movement of capital
- The country pursues an independent monetary policy
- The country maintains a balanced current account
Which of the above conditions cannot occur simultaneously in an economy?
Answer:
1, 2 and 3
Notes: According to the 'impossible trinity' or 'trilemma' in international economics, a country cannot simultaneously have a fixed exchange rate, free capital movement, and an independent monetary policy. At most, only two of these three are possible together; attempting all three leads to economic instability.